WASHINGTON, Aug. 27 (UPI) -- The U.S. crude oil swap agreement with Mexico makes sense for regional refiners looking to bridge the gap between oil grades, the U.S. government said.
The U.S. Commerce Department's Bureau of Industry and Security this month granted a request from Mexican energy company Petroleos Mexicanos, known also as Pemex, to swap as much as 100,000 barrels of U.S. crude oil per day for refining into the nation. The deal requires Mexico to refine the crude oil at home and forbids re-export to other nations.
The U.S. Energy Information Administration noted the deal makes sense for North American refiners. U.S. refineries situated along the Gulf Coast are designed to process a heavier grade of crude, like that found in Mexico, while Mexican refiners are geared toward lighter oils, like that found in U.S. shale basins.
Swaps are permissible under regulations regarding U.S. crude oil. Direct exports are banned under legislation enacted when Arab members of the Organization of Petroleum Exporting Countries in the 1970s stopped exporting oil to the United States because of U.S. support for Israel.
The Mexican swap agreement led to calls from U.S. industry supporters to overturn the ban during what they describe as an era of abundance. With U.S. crude oil production at multi-year highs because of shale, backers say exports would increase U.S. leverage overseas while driving domestic economic stimulus.
"No licenses for swaps had been granted until BIS's Aug. 14 announcement of swaps with Mexico," EIA said in a briefing. "According to trade press, pending applications for other crude swaps involving countries in Europe and Asia were not approved."
Sen. Heidi Heitkamp, D-N.D., and Senate Energy Committee Chairwoman Lisa Murkowski called on the Commerce Department to approve Mexico's request in February. Both leaders have been vocal supporters of erasing the full ban on crude oil exports.
Critics of full exports say foreign refineries aren't designed to process the lighter forms of crude oil found in U.S. shale basins. Analysis from energy analytical group Wood Mackenzie found approval for oil swaps with Mexico may open the spigot for U.S. crude oil, but might not be the export indication that supporters desire.
